CHAPTER 8

ACCOUNTING FOR CORPORATION

Learning Outcomes

After reading this chapter, the learners should be able to:

1. define corporation and explain its difference from sole
proprietorship and partnership;
2. identify the steps in forming a corporation;
3. enumerate the contents of the articles of incorporation;
4. establish an imaginary corporation and prepare its articles of
incorporation;
5. explain the concept of pre-incorporation subscription
requirements;
6. explain the importance of By Laws;
7. identify the components of shareholder’s equity;
8. explain contributed capital and legal capital;
9. identify some basic similarities and differences of ordinary and
preference shares;
10. account for the basic transactions affecting the issuance of share
capital;

DEFINITION OF CORPORATION

A corporation, as defined in the Batas Pambansa Blg. 68 or

Corporation Code of the Philippines, is an artificial being created by
operation of law, having the right of succession, and the powers, attributes
and properties expressly authorized by law or incident to its existence. But
Securities and Exchange Commission (SEC) defined corporation as a
juridical person created by operation of law and registered with Securities
and Exchange Commission.
Chapter 8 – Accounting for Corporation

With these definition we can say that for a corporation to exist, the
law must provide for its existence. Unlike sole proprietorship and
partnership which may exist even without the approval of the government,
a Corporation requires authority from the sovereign state. Although a
corporation is not in essence a human being, in the eyes of the law it is a
person with rights and powers. It is a business entity chartered by the
government accorded with powers and responsibilities as a result of its
being.

THE ARTICLES OF INCORPORATION

A corporation is created when the Articles of Incorporation are

filed with SEC which in turn will issue a Certificate of Incorporation
(COI) under its official seal. Hence, a corporation is deemed imbued with
juridical personality from the time the COI is issued by SEC. COI is valid
for fifty years, unless sooner revoked.

A stock corporation is corporation with authorized capital stock

dividend into shares of stock either with or without par value. A stock
corporation is engaged in income generating activities and is authorized to
declare dividends. On the other hand, a non-stock corporation is a
corporation with no authorized capital stock. It is organized for charitable,
religious, educational, professional, cultural, fraternal, literary, scientific,
social civil service, or similar purposes, like trade, industry, agricultural
and like chambers, or any combinations thereof.

The *requirements for the primary registration of a stock

corporation are the following:
1. Cover Sheet for Registration
2. Notarized Articles of Incorporation, By-laws and Treasurer’s
Affidavit
3. Joint Undertaking to Change Name
4. SEC Form Stock and Transfer Book (STB)

*Copies of these documentary requirements are found at the end of the

chapter.

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The contents of the Articles of Incorporation are the following:

a. The name of the corporation;
b. The specific purpose or purposes for which the corporation is
being incorporate;
c. The place where the principal office of the corporation is to be
located, which must be within the Philippines;
d. The term of which the corporation is to exist;
e. The names, nationalities and residences of the incorporators;
f. The number of directors or trustees, which shall not be less than
five (5) nor more than fifteen (15);
g. The names, nationalities and residences of persons who shall act as
directors or trustees until the first regular directors or trustees are
duly elected and qualified;
h. If it be a stock corporation, the amount of its authorized capital
stock in lawful money of the Philippines, the number of shares into
which it is divided, and in case the share are par value shares, the
par value of each, the names, nationalities and residences of the
original subscribers, and the amount subscribed and paid by each
on his subscription, and if some or all of the shares are without par
value, such fact must be stated;
i. If it be a non-stock corporation, the amount of its capital, the
names, nationalities of the contributors and the amount contributed
by each;
j. The name of the treasurer-in-trust;
k. Transfer clause;
l. Such other matters as are not inconsistent with law and which the
incorporators may deem necessary and convenient

The name of the corporation

The Corporation Code of the Philippines provides in Section 18

that no corporate name may be allowed by the SEC if the proposed name

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is identical or deceptively or confusingly similar to that of any existing

corporation or to any other name already protected by law or is patently
deceptive, confusing or contrary to existing laws.

The purpose/s of the corporation

The purpose of the corporation provides the “why” or the reason of

its existence. Under Sec. 15 of the Code it states that if there is more than
one purpose, indicate primary and secondary purpose. As many secondary
purposes a corporation would like to engage except if the business
activities in the primary and secondary are prohibited by existing laws to
be in the Articles of Incorporation of one and the same corporate entity.

The business activities that not allowed to be in the primary and

secondary purposes at the same time are:
a. Business activities of overseas recruitment and travel agency
cannot be in single entity pursuant to the implementing rules and
regulations of the Labor Code of the Philippines;
b. A corporation sole or religious society and school as the school
should be incorporated distinct with a religious corporation.

Practices of professions such as accountancy, are generally not

allowed in corporate form. However, there are practices of professions
allowed such as practice of architecture, interior design, real estate
services and customs brokerage.

The Incorporators

Incorporators are the individual persons originally forming the

corporation and are the signatories in the Articles of Incorporation. All
incorporators must be natural persons, of legal age, their number must be
at least five (5) and not more than fifteen (15). Every incorporator is
subscriber of at least one share, and majority of the incorporators are
residents of the Philippines. Foreign individuals may be allowed to be an

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incorporator provides that all requirements for incorporators are complied

with and provides further that the business activity of the corporation is
not fully reserved for Filipino ownership.

The Directors / Trustees

For stock corporations, the appropriate term is "director". For non-

stock corporations the appropriate term is "trustees". In a non-stock
corporations however, the trustees may be called by other than trustees
(i.e. directors) provides that the term used is identified as such in the
Articles of Incorporation referring to trustees.

The equity holders of a stock corporation are called shareholders.

Shareholder’s do not directly manage the business operations. They elect
from among themselves the board of directors who will run the
corporation. The board of directors or trustees shall hold office for one (1)
year until their successors are elected and qualified. They shall exercise
the corporate powers, control all business conducted and hold all property
of the corporations.

For a stock corporation, the number of directors must be at least

five (5) but not more than fifteen (15). For a non-stock corporation, the
number of trustees must be at least five (5) and could be more than fifteen.
The requirements on directors / trustees are the following:

a. Natural person and is of legal age

b. Compliant with the required number under the Corporation Code;
c. Majority of the directors are residents of the Philippines
d. Holder of at least one share or a member in case of non-stock
corporations
e. Not convicted by final judgement of an offense punishable by
imprisonment for a period exceeding six years, or a violation of the
Code committed within five (5) years prior to the date of his
election or appointment.

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Foreigners may be elected as directors except in corporations

whose business activities are 100% reserved for Filipinos.

Pre-incorporation Subscription Requirements

Pre-incorporation Subscription refers to the required number of

shares to be subscribed for purposes of incorporation. The pre-
incorporation subscription should be stated in the Articles of
Incorporation.
The Corporation Code provides that the Securities and Exchange
Commission shall not accept the articles of incorporation of any stock
corporation unless accompanied by a sworn statement of the Treasurer
elected by the subscribers showing that at least twenty-five (25%) percent
of the authorized capital stock of the corporation has been subscribed, and
at least twenty-five (25%) of the total subscription has been fully paid to
him in actual cash and/or in property, the fair valuation of which is equal
to at least twenty- five (25%) percent of the said subscription, such paid-
up capital being not less than five thousand (P5,000.00) pesos

Authorized capital stock is the total amount of shares a corporation

is allowed to issue if the shares have a par value. If the shares do not have
a par value, the corporation does not have an authorized capital stock but it
has an authorized number of shares it may issue. Subscribed capital stock
refers to the total number of shares issued or subscribed by the
stockholders.

To illustrate, the authorized ordinary share capital of Calbayog

Corporation is P5,000,000 composed of 500,000 shares of P10 par value.
To satisfy the requirement of the Code, the incorporators must subscribed
a total of at least 12,500 shares or P1,250,000 and must have paid at least
P312,500.

The Treasurer

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Treasurer must be Filipino citizen in corporations with fully or

partly nationalized business activities in view of the provisions of the
Anti-Dummy Law. However, in non-nationalized business activities, the
foreigner is allowed as treasurer.

The Transfer Clause

A transfer clause is required to be set forth in the articles of

incorporation of corporations which will engage in any business or activity
reserved for Filipino citizens. It is stated in the articles of incorporation as
follows “No transfer of stock or interest which shall reduce the ownership
of Filipino citizens to less than the required percentage of the capital stock
as provides by existing laws shall be allowed or permitted to be recorded
in the proper books of the corporation and this restriction shall be indicted
in all stock certificates issued by the corporation.”

THE BY LAWS

In layman’s term, By Laws are the rules of a corporation

encompassing the basis of its management and operations. Every
corporation, within one (1) month after receipt of official notice of the
issuance of its certificate of incorporation by the SEC, adopt a code of by-
laws for its. It shall be effective only upon the issuance by the Securities
and Exchange Commission of a certification that the by-laws are not
inconsistent with the Corporation Code.

Contents of By Laws
a. The time, place and manner of calling and conducting regular or
special meetings of the directors or trustees;
b. The time and manner of calling and conducting regular or special
meeting of the stockholders or members;

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c. The required quorum in meeting of stockholders or member and

the manner of voting therein;
d. The form for proxies of stockholders and members and the manner
of voting them;
e. The qualifications, duties and compensation of directors or
trustees, officers and employees;
f. The time for holding the annual election of directors or trustees
and the mode of manner of giving notice thereof
g. The manner of election or appointment and the term of office of all
officers other than directors or trustees;
h. The penalties for violation of the by-laws;
i. In the case of stock corporation, the manner of issuing stock
certificates; and
j. Such other matters as may be necessary for the proper or
convenient transactions of its corporate business and affairs.

If the By Laws are filed subsequent to incorporation, three copies

of By-laws signed by stockholders representing majority of the
outstanding capital stock or majority of the members in case of non-stock
corporation and the adoption was certified by majority of the board and
the corporate secretary that the by-laws was adopted by the votes required
under the Corporation Code, are required. However, if By Laws are filed
simultaneous with the Articles of Incorporation, the By-laws must be
signed by all of the incorporators.

SHAREHOLDER’S EQUITY

IAS 1 Presentation of Financial Statements, paragraph 79,

provides that an entity shall disclose, for each class of share capital:
a. The number of shares authorized;

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b. the number of shares issued and fully paid, and issued but not fully
paid;
c. par value per share, or that the shares have no par value;
d. a reconciliation of the number of shares outstanding at the
beginning and at the end of the period;
e. the rights, preferences and restrictions attaching to that class
including restrictions on the distribution of dividends and the
repayment of capital;
f. shares in the entity held by the entity or by its subsidiaries or
associates; and
g. shares reserved for issue under options and contracts for the sale of
shares, including terms and amounts; and

From these we can summarize the basic components of the

shareholders’ equity as follows:

a. Contributed capital, sub-classified into the following:

 Share capital, properly classified as ordinary and / or
preference, showing the number of authorized and number of
shares issued, and the par value or stated value in case of a no-
par value shares;
 Subscribed share capital
 Share premium or additional paid in capital, which is the
portion of consideration received from issuance of shares in
excess of par or stated value;
b. Retained earnings, which encapsulates the cumulative balance of
the corporations profits and losses for the previous periods,
distributions to equity participants in the form of dividends, and
correction of prior period errors;
c. Other comprehensive income, classified by nature and grouped
into those that will not be reclassified to profit or loss and will be
reclassified to profit or loss when specific conditions are met;
d. Treasury shares, or those that have been issued and fully paid for,
but subsequently reacquired by the issuing corporation by
purchase, redemption, donation or through some other lawful
means; and

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e. Subscription receivable.

CONTRIBUTED CAPITAL

Contributed capital, sometimes called paid in capital, is that

portion of equity contributed by owners and other equity participants. It is
composed of share capital, subscribed share capital, and share premium.

Part of contributed capital is the legal capital. For par value

shares, legal capital is the total par value of all shares issued and
subscribed. For shares without par, legal capital is the total consideration
received from the shareholders. Meaning to say, share premium is part of
legal capital in case of no-par value shares.

Par value of a share is the amount provided in the articles of

incorporation which serves as the minimum price of share upon issuance.
In the absence of par value, a corporation may set a stated value. The
Corporation Code provides that shares without par value may not be
issued for a consideration less than the value of five (P5.00) pesos per
share. It has provides, further, that the entire consideration received by the
corporation for its no- par value shares shall be treated as capital and shall
not be available for distribution as dividends.

Classifications of Share Capital

The most common classifications of shares capital are ordinary,

and preference shares.

Ordinary shares or sometimes called common shares, are the

voting shares of a corporation. They are so called ordinary because they
do not enjoy any preference from each other but only entitled to residual
profits of the corporation. Owners of ordinary shares enjoy the following
rights:
1. proportionate share in profits and losses;

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2. proportionate share in management;

3. proportionate share in the assets of the corporation upon
liquidation; and
4. proportionate share in acquiring new shares of the same class
(pre-emptive right or share right).

Preference shares or preferred shares on the other hand, are non-

voting share but enjoy preference in the distribution of the assets of the
corporation in case of liquidation and in distribution of dividends
expressed as percentage of par value, or such other preferences as may be
stated in the articles of incorporation.

Preference shares can be cumulative, participating, convertible,

redeemable, and callable.

Cumulative and participating are features of preference shares

which are related to dividends. Cumulative preference shares are entitled
to annual dividends whether declared or not. In case a corporation declares
no dividend during a certain period due to insufficiency of retained
earnings, undeclared dividends of cumulative preference shares are
disclosed in the notes as dividends in arrears, and shall be paid first
when retained earnings become sufficient. When preference shares are
participating, it enjoys additional dividends after its fixed dividend rate.
It participates in the remaining dividends after the ordinary shareholders
received a dividend equal to its par value times preference share rate. To
simplify, preference and ordinary shares will first receive dividends equal
to its par value times the preference rate, and any excess shall by shared
proportionately.

Convertible preference shares may be converted into ordinary

shares at the option of the shareholder.

Redeemable preference shares are shares that provides for

mandatory redemption by the issuer for a fixed or determinable amount at
a fixed or determinable future date, or gives the holder the right to require
the issuer to redeem the instrument at or after a particular date for a fixed

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or determinable amount. In substance, these preference shares are

financial liability and shall not form part of shareholders’ equity. Any
dividends paid to preference shareholders are recognized as finance cost or
interest expense.

Callable preference shares, similar to redeemable preference

shares, are redeemable by the issuing corporation. But the difference is
that the call is at the option of issuing corporation at a specified call price.
Hence, the corporation does not recognize liability for this type of
preference share.

Some basic similarities and differences of ordinary and preference

shares are summarized in the following table:

Ordinary Preference
1. Voting? Yes No
2. Can be par value shares? Yes Yes
3. Can be par no-par value shares? Yes No
4. With fixed return on investment? No Yes
5. With preference as to assets of corporation
in the event of liquidation? No Yes
6. With preference as to dividends? No Yes

ISSUANCE OF SHARES

Consideration for the issuance of stock may be any or a

combination of any two or more of the following:

a. Actual cash paid to the corporation;

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b. Property, tangible or intangible, actually received by the

corporation and necessary or convenient for its use and lawful
purposes at a fair valuation equal to the par or issued value of the
stock issued;
c. Labor performed for or services actually rendered to the
corporation;
d. Previously incurred indebtedness of the corporation;
e. Amounts transferred from unrestricted retained earnings to stated
capital; and
f. Outstanding shares exchanged for stocks in the event of
reclassification or conversion.

Issuance for cash

When shares with par value are issued for cash, the consideration
shall be credited to the share capital account at its par value, and the
excess to the share premium. Any directly attributable cost incurred in
relation to the issuance such as legal or registration fees, professional fees,
costs of printing stock certificates, is charged to share premium, net of any
income tax benefit. If there is no share premium, the said directly
attributable costs is reported in profit or loss as outright expense.

To illustrate, Tagapul-an Corporation issued 100,000 ordinary

shares with P10 par value for a total consideration of P1,250,000.
Tagapul-an Corporation incurred transaction costs amounting to P50,000
in relation to this issue. The journal entry to record this transaction is

Cash 1,250,000
Ordinary share 1,000,000
Share premium 250,000

Share premium 50,000

Cash 50,000

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When shares without par are issued for cash, the consideration
shall be credited to the share capital account at its stated value, and the
excess to the share premium.

In the example above, assume that the shares do not have par value
but have P5 stated value, the journal entry to record the transaction is

Cash 1,250,000
Ordinary share 500,000
Share premium 750,000

When more than one class of share capital are issued for a single
amount which is called “basket price”, the proceeds shall be split between
the classes of share capital based on their fair values.

To illustrate, San Jorge Corporation issued 100,000 ordinary shares

with par value of P10 and 12%, 20,000 preference shares with par value of
P25, for a total consideration of P2,100,000. On this date, the fair value of
San Jorge Corporation’s ordinary and preference shares are P12 and P30,
respectively. The journal entry to record the transaction is

Cash 2,100,000
Ordinary share 1,000,000
Share premium - ordinary 400,000
Preference share 500,000
Share premium - preference 200,000

Allocated to ordinary: P2,100,000 x 12/18* = P1,400,000

Allocated to preference: P12,000,000 x 6/18* = P700,000

Class Fair value Fraction

Ordinary (100,000 x 12) 1,200,000 12/18
Preference (20,000 x 30) 600,000 6/18
1,800,000

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A share certificate is issued upon receipt by the corporation of the

full amount of issue price. Hence, if the share capital account is credited, it
is understood that the shares are fully paid and the share certificate has
been issued. In case of shares issued on a subscription basis, no certificate
of stock shall be issued to a subscriber until the full amount of his
subscription together with interest and expenses, in case of delinquent
shares, if any is due, has been paid.

To illustrate, Sto. Nino Corporation signed a subscription contract

with Mr. Froilan Labausa for the subscription of 50,000 ordinary shares
with P10 par value, for a total subscription price of P800,000. The contract
provided that Mr. Labausa shall pay a 30% down payment and the balance
is payable in four equal instalments. Mr. Labausa paid the four instalments
as agreed and the share certificate is accordingly issued.

The journal entries to record the foregoing are:

Cash 240,000
Subscription receivable 560,000
Subscribed ordinary share 500,000
Share premium 250,000

Cash 140,000
Subscription receivable 140,000

Cash 140,000
Subscription receivable 140,000

Cash 140,000
Subscription receivable 140,000

Cash 140,000
Subscription receivable 140,000

Subscribed ordinary share 500,000

Ordinary share 500,000

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Delinquent shares

Shares are said to be delinquent if the subscribed defaulted in the

payment of the balance of the subscription. The board of directors may, by
resolution, order the sale of delinquent stock and shall specifically state
the amount due on each subscription plus all accrued interest, and the date,
time and place of the sale which shall not be less than thirty (30) days nor
more than sixty (60) days from the date the stocks become delinquent.
Notice of said sale, with a copy of the resolution, shall be sent to every
delinquent stockholder either personally or by registered mail. The same
shall furthermore be published once a week for two (2) consecutive weeks
in a newspaper of general circulation in the province or city where the
principal office of the corporation is located.

Unless the delinquent stockholder pays to the corporation, on or

before the date specified for the sale of the delinquent stock , the balance
due on his subscription, plus accrued interest, costs of advertisement and
expenses of sale, or unless the board of directors otherwise orders, said
delinquent stock shall be sold at public auction to such bidder who shall
offer to pay the full amount of the balance on the subscription together
with accrued interest, costs of advertisement and expenses of sale, for the
smallest number of shares or fraction of a share. The stock so purchased
shall be transferred to such purchaser in the books of the corporation and a
certificate for such stock shall be issued in his favor. The remaining
shares, if any, shall be credited in favor of the delinquent stockholder who
shall likewise be entitled to the issuance of a certificate of stock covering
such shares.

Using the same example, but assume that after paying the two
instalments, Mr. Labausa informed Sto. Nino Corporation that he can no
longer pay the balance of the subscription price. Consequently, the
subscription was declared delinquent.

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The unpaid subscription was offered for sale at public auction for
P300,000 including costs of advertisement and expenses of sale of
P12,000 and interest of P8,000. Mr. Sandoval bid for 18,000 shares, Ms.
Celis for 18,200 shares, and Mr. de Guzman for 18,500 shares.

The journal entries to record the foregoing are:

Cash 240,000
Subscription receivable 560,000
Subscribed ordinary share 500,000
Share premium 250,000

Cash 140,000
Subscription receivable 140,000

Cash 140,000
Subscription receivable 140,000

Receivable from highest bidder 300,000

Subscription receivable 280,000
Interest income 8,000
Cash 12,000

Cash 300,000
Receivable from highest bidder 300,000

Subscribed ordinary share 500,000

Ordinary share 500,000

Mr. Sandoval will receive the 18,000 shares while Mr. Labausa
will receive only 32,000.

Should there be no bidder at the public auction who offers to pay

the offer price, the corporation may, bid for the same , and the total
amount due shall be credited as paid in full in the books of the
corporation. Title to all the shares of stock covered by the subscription

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shall be vested in the corporation as treasury shares and may be disposed

of by said corporation.

Using the same example, if there were no bidders for the

delinquent shares, the following entries are prepared:

Treasury shares 300,000

Receivable from highest bidder 300,000

Subscribed ordinary share 500,000

Ordinary share 500,000

Issuance for property received

According to the Corporation Code, if the consideration is other

than actual cash, or consists of intangible property such as patents or
copyrights, the valuation thereof, shall initially be determined by the
incorporators or the board of directors, subject to the approval by the
Securities and Exchange Commission. Shares of stock shall not be issued
in exchange for promissory notes or future service.

On the other hand, IFRS 2 Share-based Payment provides “for

equity-settled share-based payment transactions, the entity shall measure
the goods or services received, and the corresponding increase in equity,
directly, at the fair value of the goods or services received, unless that fair
value cannot be estimated reliably. If the entity cannot estimate reliably
the fair value of the goods or services received, the entity shall measure
their value, and the corresponding increase in equity, indirectly, by
reference to the fair value of the equity instruments granted”.

Both the Corporation Code and IFRS agree that shares issued for
property shall be measured using the fair value of the property received if
such is determinable, otherwise, the fair value of the shares shall be used.
It is important to know the fair value to be considered in the transaction

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because the amount of share premium depends on the excess of the fair
value considered and the par value of the shares.

To illustrate, Almagro Corporation issued 100,000 ordinary shares

with P10 par value and P12 fair value, for a building. Almagro
Corporation estimated that the building has a fair value of P1,500,000. The
journal entry to record this transaction is

Building 1,500,000
Ordinary share 1,000,000
Share premium 500,000

Using the same example, but assume that Almagro cannot estimate
reliably the fair value of the building, the journal entry to record this
transaction is

Building 1,200,000
Ordinary share 1,000,000
Share premium 200,000

Needless to say, if both the fair values of the property received and
share capital issued are not determinable, the transaction is recorded using
the par value. Hence, the journal entry to record this transaction is

Building 1,000,000
Ordinary share 1,000,000

Issuance for services received

Consistent with the application of IFRS 2, the issuance of shares

for services received from parties other than employees of the issuing
corporation, shall be measured using the fair value of such service, unless
that fair value is not determinable. (The accounting for issuance of share
capital to employees shall be discussed in intermediate accounting).

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To illustrate, Sta. Margarita Corporation engaged the services of

Atty. Maglana in filing the amended Articles of Incorporation and By
Laws of the corporation. Rather than paying in cash, both parties agreed
that Sta. Margarita will issue 100 ordinary shares of P100 par to Atty.
Maglana. The fair value of the services received is reliably determined to
be P12,000 while the fair value of the shares is P105 per share.

The journal entry to record this transaction is

Expense 12,000
Ordinary share 10,000
Share premium 2,000

Issuance to cancel an indebtedness of the corporation

Issuance of share capital is one of the ways a corporation settles a

liability. The issuance is measured using the fair value of the share capital.
Any difference of the fair value of the share capital and the carrying value
of the liability settled is reported in profit or loss as gain or loss on
settlement.

To illustrate, assume that Sta. Monica Corporation has an

outstanding P1,000,000 note payable to Ms. Myrna Belen. The parties
agreed that Sta. Monica will issue 9,000 shares of its P100 par value
ordinary shares. The fair value of Sta. Monica’s shares are P110.

The journal entry to record the transaction is

Note payable 1,000,000

Ordinary share 900,000
Share premium 90,000
Gain on settlement 10,000

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The accounting for the conversion of convertible bonds are

discussed in intermediate accounting.

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ARTICLES OF INCORPORATIONi-o;;” AND BY-LAWS – STOCK

CORPORATION

Articles of Incorporation

Of

(Name of the Corporation)

KNOW ALL MEN BY THESE PRESENTS:

The undersigned incorporators, all of legal age and majority of

whom are residents of the Philippines, have this day voluntarily agreed to
form a stock corporation under the laws of the Republic of the Philippines;

AND WE HEREBYCERTIFY:

FIRST: That the name of said corporation shall be

____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
___________________________;

SECOND: That the primary purpose for which such corporation is

incorporated:

____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

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____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
_________________________________________;

Provided that the corporation shall not solicit, accept or take

investments/placements from the public neither shall it issue investment
contracts.

THIRD: That the principal office of the corporation is located in

____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
___________________________;
(complete address)

FOURTH: That the term for which said corporation is to exist is

__________________ years from and after the date of issuance of the
certificate of incorporation;

FIFTH: That the names, nationalities and residences of the

incorporators are as follows:

NAME NATIONALITY
RESIDENCE

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SIXTH: That the number of directors of the corporation shall be

_______________; and the names, nationalities and residences of the first
directors of the corporation are as follows:

NAME NATIONALITY RESIDENCE

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SEVENTH: That the authorized capital stock of the corporation is

_____________________________________(P_____________________
________) pesos in lawful money of the Philippines, divided
into__________________________________ shares with the par value of
____________________________(P_______________) pesos per share;

EIGHT: That at least twenty five (25%) percent of the authorized

capital stock above has been subscribed as follows:

NAME OF NO. OF AMOUNT

SUBSCRIBERS NATIONA SHARES SUBSCRIB
LITY SUBSCRIBED ED

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NINTH: That the above-named subscribers have paid at least

twenty-five (25%) percent of the total subscription as follows:

NAME OF AMOUNT TOTAL PAID-

SUBSCRIBERS SUBSCRIBED UP

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TENTH: That ______________________________________has

been elected by the subscribers as Treasurer of the Corporation to act as
such until his successor is duly elected and qualified in accordance with
the by-laws, and that as such Treasurer, he has been authorized to receive
for and in the name and for the benefit of the corporation, all subscriptions
or donations paid or given by the subscribers.

ELEVENTH: That no transfer of stock or interest which will

reduce the ownership of Filipino Citizens to less than the required
percentage of the capital stock as provides by existing laws shall be
allowed or permitted to be recorded in the proper books of the corporation
and this restriction shall be indicated in all the stock certificates issued by
the corporation.

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TWELFTH: That the incorporators and directors undertake to

change the name of the corporation as herein provided, or as amended
thereafter, immediately upon receipt of notice or directive from the
Securities and Exchange Commission that another corporation, partnership
or person has acquired a prior right to the use of that name or that the
name has been declared as misleading, deceptive, confusingly similar to a
registered name or contrary to public morals, good custom or public
policy.

IN WITNESS WHEREOF, we have hereunto signed these Articles

of Incorporation, this __________day of ____________________
20______, in the City/Municipality of _______________________,
Province of____________________, Republic of the Philippines.

TIN- TIN- TIN-

TIN- TIN- TIN-

TIN- TIN- TIN-

TIN- TIN- TIN-

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 Chapter 8 – Accounting for Corporation

TIN- TIN- TIN-

(Names and signatures of the incorporators and TIN)

ACKNOWLEDGEMENT

REPUBLIC OF THE PHILIPPINES }

} S.S.

BEFORE ME, a Notary Public, for and in

_____________________, Philippines, this ___________day of
______________________, 20 _________, personally appeared the
following persons:

TIN/ID/Passport Date &

Name No. Place Issued

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known to me and to me known to be the same persons who executed the

foregoing Articles of Incorporation constituting of four (4) pages,
including this page where the acknowledgement is written, and they
acknowledged to me that the same is their free act and voluntary deed.

WITNESS MY HAND AND SEAL on the day first above-

written.

NOTARY PUBLIC
Doc. No. ________
Page No. ________
Book No. _________
Series of _________

TREASURER’S AFFIDAVIT

REPUBLIC OF THE PHILIPPINES )

CITY/MUNCIPALITY OF ) S.S
PROVINCE OF )

I, ______________________________________, being duly

sworn to, depose and say:

That I have been elected by the subscribers of the corporation as

Treasurer thereof, to act as such until my successor has been duly elected
and qualified in accordance with the by-laws of the corporation, and that
as such Treasurer, I hereby certify under oath that at least 25% of the
authorized capital stock of the corporation has been subscribed and at least
25% of the total subscriptions has been paid, and received by me, in cash
or property, in the amount of______________________________ in
accordance with the Corporation Code

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___________________________________
(Signature of
Treasurer)

SUBSCRIBED AND SWORN to before me, a Notary Public, for

and in the City/Municipality of_____________________________,
Province of___________________________ this ______ day of
____________________,19_______; by _________________with Res.
Cert. No._____________________ issued at
_________________________on _________________, 19_________.

NOTARY PUBLIC
My commission expires on
_______________________,
19___________

Doc. No._______
Page No._______
Book No.________
Series of ________

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BY –LAWS

OF

(Name of Corporation)

I. THE TIME, PLACE AND MANNER OF CALLING AND

CONDUCTING REGULAR OR SPECIAL MEETINGS OF THE
DIRECTORS.

a) Regular meetings of the board of directors of the corporation

shall be held monthly, unless the by-laws provide otherwise.

b) Special meetings of the board of directors may be held at any

time upon the call of the president or as provided in the by-
laws

c) Meetings of directors may be held anywhere in or outside of

the Philippines, unless the by-laws provide otherwise. Notice
of regular or special meetings stating the date, time and place
of the meeting must be sent to every director or trustee at least
one (1) day prior to the scheduled meeting, unless otherwise
provided by the by-laws. A director may waive this
requirement, either expressly or impliedly.

II. THE TIME AND MANNER OF CALLING AND

CONDUCTING REGULAR OR SPECIAL MEETINGS OF THE
STOCKHOLDERS.

a) Regular or annual meetings of stockholders shall be held

annually on______________________ (specific date).

b) Written notice of regular meetings shall be sent to all

stockholders of record at least two (2) weeks prior to the
meeting, unless a different period is required by the by-laws.

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c) Special meetings of stockholders shall be held at any time

deemed necessary or as provided in the by-laws:

d) Written notice of special meetings shall be sent to all

stockholders at least one week prior to the meeting, unless a
different period is required by the by-laws.

e) Stockholders’ meetings, whether regular or special, shall be

held in the city or municipality where the principal office of the
corporation is located, and if practicable in the principal office
of the corporation. Metro Manila shall, for the purpose of this
provision, be considered city or municipality.

III. THE REQUIRED QUORUM IN MEETINGS OF

STOCKHOLDERS

a) The required quorum in meetings of stockholders shall consist

of the stockholder/s representing a majority of the outstanding
capital stock.

IV. THE FORM FOR PROXIES OF STOCKHOLDERS AND THE

MANNER OF VOTING THEM

a) Stockholders may vote in person or by proxy in all meetings of

stockholders. Proxies shall be in writing, signed by the
stockholder and filed before the scheduled meeting with the
corporate secretary. Unless otherwise provided in the proxy, it
shall be valid only for the meeting for which it is intended. No
proxy shall be valid and effective for a period longer than five
(5) years at any one time.

V. THE QUALIFICATIONS, DUTIES, TERM AND

COMPENSATION OF DIRECTORS

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a) No person convicted by final judgment of an offense

punishable by imprisonment for a period exceeding six (6)
years, or a violation of this Code, committed within five (5)
years prior to the date of his election shall qualify as a director.
Every director must own at least one (1) share of the capital
stock of the corporation, which share shall stand in his name on
the books of the corporation. Any director who ceases to be the
owner of at least one (1) share of the capital stock of the
corporation shall thereby cease to be a director. A majority of
the directors must be residents of the Philippines.

b) The corporate powers of the corporation shall be exercised, all

business conducted and all property of the corporation be
controlled and held by the board of directors to be elected from
among the holders of stocks, who shall hold office for one (1)
year and until their successors are elected and qualified.

c) The directors shall not receive any compensation, as such

directors, except for reasonable per diems. Any compensation
may be granted to directors by the vote of the stockholders
representing at least a majority of the outstanding capital stock
at a regular or special stockholders’ meeting, In no case shall
the total yearly compensation of directors, as such directors,
exceed ten (10%) percent of the net income before income tax
of the corporation during the preceding year.

VI. THE MANNER OF ELECTION OR APPOINTMENT,

QUALIFICATION AND THE TERM OF OFFICE OF ALL
OFFICERS OTHER THAN DIRECTORS

a) Immediately after their election, the directors of a corporation

must formally organize by the election of a PRESIDENT, who
shall be a director, a TREASURER who may or may not be a

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director, a SECRETARY who shall be a resident and citizen of

the Philippines, and such other officers as may be provided in
the by-laws. Two (2) or more positions may be held
concurrently by the same officer, however no one shall act as
PRESIDENT and SECRETARY or as PRESIDENT and
TREASURER at the same time. The officers of the corporation
shall hold office for one (1) year and until the successors are
elected and qualified. The officers of the corporation shall
perform functions as required by existing laws, rules and
regulations.

VII. FISCAL YEAR

a) The fiscal year of the corporation shall begin on the first day of
January
and end on the last day of December of each year.

VIII. SEAL

a) The corporate seal shall be determined by the Board of

Directors.

IX. MISCELLANEOUS PROVISIONS:

a) Matters not covered by the provisions of these by-laws shall

be governed by the provisions of the Corporation Code of the
Philippines.

IN WITNESS WHEREOF, we, the undersigned incorporators

and/or stockholders present at said meeting and voting thereat in favor of
the adoption of said by-laws, have hereunto subscribed our names this
_________ day of _____________ at
__________________________________.

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